A. O. Smith Corporation (NYSE:AOS) Q4 2023 Earnings Conference Call January 30, 2024 10:00 AM ET

Company Participants

Helen Gurholt - VP, IR and Financial Planning & Analysis

Kevin Wheeler - Chairman & CEO

Chuck Lauber - CFO

Conference Call Participants

Michael Halloran - Baird

Jeff Hammond - KeyBanc Capital Markets

Susan Maklari - Goldman Sachs

Saree Boroditsky - Jefferies

David MacGregor - Longbow Research

Andy Kaplowitz - Citigroup

Operator

Good day and thank you for standing by. Welcome to the A. O. Smith’s Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded.

I would now like to hand the call over to our first speaker for today, Helen Gurholt. Please go ahead.

Helen Gurholt

Thank you Abigail. Good morning everyone and welcome to the A. O. Smith’s full year and fourth quarter conference call. I’m Helen Gurholt, Vice President, Investor Relations and Financial Planning & Analysis. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer; and Chuck Lauber, Chief Financial Officer.

In order to provide improved transparency into the operating results of our business, we provided non-GAAP measures. Free cash flow is defined as cash from operations, less capital expenditures. Adjusted earnings, adjusted earnings per share, adjusted segment earnings and adjusted corporate expenses exclude the impact of impairment charges, non-operating noncash pension income and expenses as well as legal judgment income and terminated acquisition-related expenses. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website.

A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include matters that we described in this morning’s press release, among others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue.

We will be using slides as we move through today’s call. You can access them on our website at investor.aosmith.com.

I will now turn the call over to Kevin to begin our prepared remarks. Please turn to the next slide.

Kevin Wheeler

Thank you, Helen, and good morning, everyone. I’m on slide 4 in our full-year results. 2023 was a record-studying sales and earnings year, driven by resilient water heater demand and excellent execution by our team. North America sales increased 4% and adjusted segment margin increased 310 basis points due to higher water heater volumes and improved price-cost relationship. Our rest-of-wall segment, sales grew 4% in local currency as our recently introduced kitchen products in China were well-received by the market. In India, our sales grew 15% local currency in 2023 and benefited from sales of new products which represented 30% of our sales. Free cash flow grew to $598 million, primarily driven by record profit. We returned $490 million of capital to shareholders with our dividend and share repurchases.